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Author: 



National bureau of 
economic research 

Title: 

A bold experiment 



Place: 



[New York] 

Date: 

[192- 




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MASTER NEGATIVE # 



COLUMBIA UNIVERSITY LIBRARIES 
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BIBLIOGRAPHIC MICROFORM TARGET 



ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD 





National bureau of economic research 
A bold experiment: the story of the 

National bureau of economic research. j-New 

York, 192-?j 

15 p. 2^2 cm. 

By i;esley Clair Mtchell, director of 
research. 



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A Bold Experiment 



The Story of the 
National Bureau of 
Economic Research 



LIBRARY 
SCHOOL OF BUSINESS 



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Foreword 

*'What the United States and the World 
need is a/n impartial organization for statistical 
research, which will dedicate itself to the dis- 
cussion and declaration of the truth as to the 
great economic questions of the day," — ^De. 
Royal Meekee, International Labor Office, 
League of Nations, Geneva, 

**It is not to be supposed that men Tcill ever 
agree vn their opinions about all social and 
industrial policies, but if they can agree upon 
certain facts, much that is in controversy may 
be cleared up." — Geoege E. Robeets, Vice- 
President, National City Bank of New York, 
Former Director of the Mint of the United 
States. 

To meet this demand, the National Bureau 
of Economic Research was incorporated in 
New York, January 29, 1920. Its method is 
quantitative research by a staff under direction 
of a Board representing every important angle 
from which social problems are viewed. 

Its effort is to reduce economic and indus- 
trial problems to definite facts and authorita- 
tive figures. 

The practical operation of the Bureau, there- 
fore, is a move toward clear thinking in public 
discussions, in business and in government. 



DIRECTORS 



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AT LARGE: 

T. S. ADAMS 
Professor of Political Economy, Yale University 

JOHN R. COMMONS 

Professor of Political Economy, University of Wisconsin 

JOHN P. FREY, Chairman. 

Editor, International Holders' Journal, Cincinnati, Ohio 

EDWIN F. GAY 

President, New York Evening Pout 

HARRY W. LAIDLER 

Secretary, The League for Industrial Democracy 

EI.WOOD MEAD 

Professor of Rural Institutions, University of California 

WESLEY C. MITCHELL 

Treasurer of the New School for Social Research 

J. E. STERRETT 

Member of firm of Price, Waterhovse and Company, N. Y. and Advisor 

to U. S. Treasury Department on matters of Taxation 

N. I. STONE 
Labor Manager, Hickey-Freeman Company, Rochester, N. Y. 

ALLYN A. YOUNG 

Professor of Economics, Harvard University 



I* 



BY APPOINTMENT: 

HUGH FRAYNE 

American Federation of Labor 

DAVID FRIDAY 
American Economic Association 

WALTER R. INGALLS 
Engineering Council 

J. M. LARKIN 
Industrial Relations Association 

W. H. NICHOLS, JR. 

National Industrial Conference Board 

r.EORGE E. ROBERTS, Treasurer. 

American Bankers' Association 

M. C. RORTY, President. 
American Statistical Association 

A. W. SHAW 

Periodical Publishers' Association 

GRAY SILVER, Vice-President. 

American Farm Bureau Federation 



RESEARCH STAFF: 

WESLEY C. MITCHELL 

Director. 

WILLFORD I. KING 

F. R. MACAULAY 

OSWALD W. KNAUTH, Secretary. 



A BOLD EXPERIMENT 

By Wesley Clair Mitchell 

Director of Research 



WHEN we met in February, 1921, our organ- Doubts about 
- . ,, * . . . our form of 

ization seemed to us all a promismg experi- organization 

ment, but still an experiment of uncertain . 
issue. The plan of bringing together into one 
Board men who represented so many and such 
divergent views of public policy, as are here rep- 
resented, and of asking all these men to unite in 
assuming responsibility for the publication of such 
findings as the Bureau's staff might reach, was a 
very bold plan. 

We hoped that the staff could do work that 
would commend itself to honest opinion of all 
shades. We hoped that the Directors could agree 
upon the facts presented, however they might differ 
concerning the policies to which these facts pointed. 
But we could not be sure of success. For the field 
in which we were working was one that put our 
organization to a severe test. 

The National Income is not a magnitude that 
can be determined with precision. It must be esti- 
mated rather than measured, and in judging esti- 
mates personal equations inevitably play a con- 
siderable role. Moreover estimates of the size and 
distribution of the National Income have been sub- 
jects of spirited controversy. It would have been 
by no means surprising had we found ourselves 
unable to work together in harmony. 

s 



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Have been dis- 
pelled by this 
year's success 



Our contribu- 
tion to the 
working 
methods of 
democracy 



That we have not failed, that on the contrary 
all members of the Board accepted the estimates 
made by the staff, with the exception of one Direc- 
tor who was in Europe and could not read the manu- 
script, should be a source of pride to every one con- 
nected with the Bureau. This agreement shows 
each of us that we mav trust the fair-mindedness of 
all the others. It justifies us as a Board in facing 
the future with far more confidence than we could 
feel a year ago. 

^ More than that, the success of our enterprise has 
a large, impersonal significance. Our Bureau is 
seeking to raise the discussion of public questions 
to a higher level. We believe that social programs 
of whatever sort should rest whenever possible on 
objective knowledge of fact and not on subjective 
impressions. By putting this faith into practice 
we are making a contribution to the working meth- 
ods of intelligent democracy. The practical dem- 
onstration we have given that men of otherwise 
divergent views can unite in the scientific investi- 
gation of controverted social facts will give a pow- 
erful stimulus to all movements like ours. 



II 

FROM this general statement concerning the ^^"^p^^^^^^^^^ 
accomplishments of the year I pass to details, income in the 
The manuscript of the Summary volume on In- 
come in the United States was sent to the printer on 
September 10th, and the first copies of the book 
were received early in December. Meanwhile the 
staff was finishing the manuscripts of Volume II, 
which of course is far more bulky and which con- 
tains a vast amount of laborious detail. The manu- 
scripts of Parts I and II of this volume were put in 
the printer's hands on December 24th. These parts, 
prepared respectively by Mr. King and Mr. 
Knauth, deal with the Estimate by Sources of 
Production and the Estimate by Incomes Received. 
Part III written by Mr. Macaulay and dealing with 
the Distribution of Personal Incomes has just been 

completed. 

May I take this occasion to thank the Du-ectors Active partici- 
on behalf of the staff for their help in bettering the JfiJ'^c^ors^in 
original estimates? Aside from their share in the work of 
assuming joint responsibility for the competence 
and impartiality of the publications, several of the 
Directors were able to give the details close scrutiny 
and to make constructive criticisms. 

From the staff's point of view this opportunity 
to call upon a group of friendly critics, possessing a 
wide range of knowledge, for a review of their 
work before publication is one of the great advan- 
tages of our form of organization. 

Of course we were much pleased by the way in Close agree- 

-_- , « 1 . ment between 

which our figures came out. The plan of makmg the two esti- 
two separate estimates of the National Income, Satiwiai 

Income 
7 



Plan of pub- 
lication 



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quite independently of each other, set up a hard 
test of the work done by Mr. King and Mr. Knauth. 
We felt not a little nervous when the day came on 
which we first cast up the totals by Sources of Pro- 
duction and by Incomes Received. Our President, 
who has had wide experience in statistical research, 
told us we should be satisfied if the two estimates 
did not differ by more than 20 per cent. When 
the largest discrepancy in any one year proved to 
be only 7 per cent we felt a marked increase of 
confidence in our work. 

We have reason to be pleased also by the plan 
of publication. By issuing a little book that can 
be sold for $1.50, and that anyone can read in an 
evening, we are securing a wide circulation for our 
chief results. By issuing a second volume giving 
detailed results, sources, and methods, we provide 
adequately for the small group of statisticians and 
economists who are critically interested in work 
such as we are doing. This plan also makes simple 
the problem of future publication. We hope to 
revise our estimates of the National Income for 
recent years and to add new estimates for later 
years as the data become available. From time to 
time we should issue fresh editions of Volume I, 
giving the latest figures. Probably Volume II need 
never be republished ; but appendices can be inserted 
in Volume I giving details in such form that the 
special student can splice them upon the tables now 
in the printer's hands. 



8 



III 



w 



HEN the staff was approaching the com- Choice of next 
pletion of their work on income in the investigation 
United States, the Executive Committee consid- 
ered what problem should be taken up next. After 
canvassing several proposals the Committee decided 
to choose Business Cycles as the topic. 

Several reasons lustified this decision. First, the Reasons for 

/. n 1 selecting 

subject is one of great importance to all classes Business 
in the community. Second, it is a subject in which ^^ ^^ 
quantitative methods can be employed to great 
advantage. Third, while several institutions and 
individuals are working on certain aspects of this 
subject the Executive Committee does not know 
of anyone who is planning a comprehensive survey-^ 
of the whole. Meanwhile there is a strong demand 
for a treatise that puts together in concise, syste- 
matic, and readily comprehensible form the results 
of recent researches into the causes, character and 
consequences of these cyclical oscillations that affect 
the economic fortunes of everyone. Fourth, the 
staff of the Bureau seems qualified by past experi- 
ence and present interest to fill this want. Finally 
this new undertaking will enable the staff to make 
effective use of much of the special knowledge they 
have gained in studying the fluctuations of the 
National Income. 

In this projected work on Business Cycles we Proposed plan 
expect to begin with two or three special studies **' publication 
of topics that have never been adequately investi- 
gated. The magnitude and yearly fluctuations of • 
savings is one such topic; the changes in the effi- 



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ciency of labor is a second; and the relation between 
fluctuations in the current supply of certain staples 
for which we have good statistics and of the prices 
at which they sell is a third. Our present expecta- 
tion is that we shall publish brief monographs on 
each of these topics and perhaps on others, while 
we are preparing the systematic treatise. Of 
course the latter will incorporate our own fresh 
results along with the results reached by other 
investigators. 



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IV 



WHILE we were formulating these plans for 
work on Business Cycles, we were requested 
by Secretary Hoover to undertake a special job 
in the public interest. Four members of this 
Board had served on the Advisory Committee of 
the President's Conference on Unemployment. 
Before that Conference adjourned it recommended 
that an effort be made to frame a practical program 
for preventing the recurrence or at least mitigating 
the severity of future periods of widespread unem- 
ployment. To supervise this work the Conference 
appointed a Standing Committee of which Secre- 
tary Hoover is Chairman. This Committee recog- 
nized that a careful investigation must be made 
into the cyclical fluctuations in employment and 
into the merits and defects of various remedies pro- 
posed before they attempted to formulate a policy. 
The Conference on Unemployment had no organi- 
zation ready to make such an investigation. So 
Secretary Hoover wrote to our President asking 
whether the National Bureau of Economic Re- 
search would prepare a report on Unemployment 
and the Business Cycle within six months. 

In view of the obvious service that we might thus 
render to the country and in view of the fact that 
the topic proposed falls directly in line with the 
work we had already planned, Mr. Gay, after con- 
sulting with other members of the Executive Com- 
mittee replied that we would undertake the work, 
provided that our report should be submitted to our 
own Board of Directors for approval before being 

11 



The request 
for our help 
made by the 
President's 
Conference on 
Unemploy- 
ment 



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Conditions on 
which the 
Executive 
Committee 
SLgrted to the 
request 



Preliminary 
planning of 
the work 



1^. 



sent to the Standing Committee of the Unemploy- 
ment Conference, provided that we should be free 
to publish our findings separately if we so desired, 
provided that our work should be confined to ascer- 
taining facts needful to be considered, and provided 
that money should be found to meet all the increase 
of expenses which the Bureau would incur in doing 
this work within the brief time allowed. 

These provisos were all acceptable to Mr. 
Hoover. We planned the work in advance, so that 
we were able to start active work promptly on Feb- 
ruary 20th, when funds became available. This 
undertaking will absorb the Bureau's energies un- 
til August 20th, when the report is to be completed. 

In order to get results quickly we asked for the 
cooperation of several other agencies, notably the 
Russell Sage Foundation, the Bureau of Railway 
Economics and the Federated American Engineer- 
ing Societies. We have obtained also the services 
of various individuals who are especially conversant 
with particular aspects of the subject. By this 
scheme we hope to avoid duplication of effort and to 
turn out a well-considered report in a much briefer 
time than would otherwise be possible. The readi- 
ness of other research organizations and investi- 
gators to cooperate with us has been most gratify- 
ing. 



12 



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Besides the main projects with which I have Other work 
dealt, the staff has done various minor pieces of suff ^ 
work growing out of the investigation into the Na- 
tional Income or preparatory for the work on 
Business Cycles. To mention only the main 
headings : 

(1) Mr. Knauth is making a tentative estimate 
of the National Income in 1920, on the basis of 
incomes received. Of course these figures are sub- 
ject to revision when more complete data — espe- 
cially the Income Tax returns — become available. 

(2) Mr. Knauth also has in hand a report on 
the geographical distribution of income by States. 
This report after submission to the Directors, will 
probably be published in a separate pamphlet. In- 
formation of this character has commercial value 
to all business enterprises which have a wide market 
for their products. 

(3) Mr. King has prepared the first draft of a 
study of annual savings in the United States, which 
he will revise and extend before submitting it to the 
Directors. 

(4) Mr. King is also collecting data bearing 
upon average hourly output per employee in certain 
industries to see whether the available data make 
possible any definite conclusions regarding indus- 
trial efficiency in active and in dull times. 



13 



y 



The problem 
of future 
financing 



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VI 

I THINK it is clear from this record of the 
past year that the National Bureau of Eco- 
nomic Research is an institution that should be per- 
petuated. We have proved that our peculiar form 
of organization works well in practice. The fact 
that we can all agree in finding the facts concern- 
ing social issues is the best practical demonstration 
that any group of men have given that scientific 
method can be applied to the treatment of social 
problems. Our first publication has had a most 
favorable reception. We have been asked by a 
member of the President's Cabinet to help in the 
solution of a grave national issue. We have before 
us a program of future work not less important 
than the work we have already done. We are 
confident that we can do this work well, because we 
are a going concern with an efficient organization 
and a valuable good will. 

Despite all this, our prospects for survival are 
not certain. Unless we secure and secure promptly 
a considerable addition to our income we shall be 
forced to shut up shop. The fundamental difficulty 
in raising funds for our enterprise is that we serve 
only the public welfare. We offer to donors no 
specific quid pro quo. Men who give us money 
must do so not because we promise them a business 
service, not because we will make out a case in 
favor of their views, but because they believe that 
social progress rests on finding and promulgating 
facts. ^lost delusions about public policy arise 
from ignorance of fundamental facts far more than 
they arise from bad reasoning or bad feeling. The 

14 



best way to combat such delusions is to ascertain the 
truth as accurately as possible and make it known 
through agencies that are impartial/ To men who 
hold this faith the Bureau must look for the funds 
necessary to continue its work. 



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Date Due 




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